Government shutdown costs family $10,000 and dream house

The program, designed to help families just like Tom Maloys, is now on hold because of the shutdown. No loans are being processed.

Tom and Casey Maloy are living every homebuyer's bad dream: Though they were able to sell their too-small house in Baton Rouge, La., the government shutdown has shut them and their five kids out of a great deal on a move-up house.

"We get the phone call that, hey, you're approved, but the government is shut down, and your government backed-USDA loan cannot be processed, so you have to wait," Tom said.

The Maloys had planned to use a Department of Agriculture rural development home loan, a 30-year fixed product requiring no down payment. The program, designed to help families just like the Maloys, is now on hold because of the shutdown. No loans are being processed.

"I'm pretty stressed out, unsure of where our country is heading and how to provide day to day for our children if we can't finish our loan now, because we do have to be out of this house in a week for the new owners to move in," Casey said. "They've given us an extra week, so it's kind of stressful."

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The USDA program is very small. It originated just over 132,000 loans last year, less than 2 percent of the overall mortgage marketplace, according to the Mortgage Bankers Association. It has expanded in recent years, however, as the definition of "rural" bleeds into the nation's exurbs.

The loans require a 2 percent insurance fee, but that cost may be added to the loan size during closing, as can costs of eligible home repairs and improvements, according to Dan Green of Waterstone Mortgage in CIncinnati.

That is not allowed with Fannie Mae or Freddie Mac loans. The annual insurance is about a quarter of what the Federal Housing Administration (FHA) charges to back loans.

The Maloys learned that the hard way, as their only option was to switch to an FHA loan. Instead of a no-down payment loan that would cost $1,400 a month, they must now put $10,000 down. The FHA loan also will cost them $150 more each month in fees. The FHA is a government mortgage insurer, but most lenders can process its loans electronically, even during the shutdown.

"We just had to do what we had to do, and that's the decision that I have to make, so that my kids aren't homeless," said Tom, emphasizing that while he and his wife both work, together they don't earn six figures. "I can't give them everything I promised to give them now, but they'll have a home."

The USDA program may seem insignificant, but the longer the shutdown goes on, the more its absence hurts.

"The shutdown of [rural development] loan and grant-making activities for a prolonged period of more than two weeks would have an immense adverse impact on the rural economy," said a September 2013 USDA report on the consequences of a shutdown. "A more permanent interruption in the program would cause a substantial reduction in housing available in rural areas relative to population."

Commercial real estate is also affected, as new and expanding rural business are unable to get loan guarantees for new jobs and to save existing ones.

"Projects already financed that are under construction would be delayed in having any bridge financing replaced with permanent financing from USDA," according to the report. "A long-term shutdown would place rural development seriously behind in our mission of improving quality of life and economic opportunity in rural areas with limited income. The current community facility loan program is one of the very few sources of financing for essential community facilities in rural areas."

The Maloys will get a new home, but they won't have enough for the much-needed addition they had planned to build or for the new furniture they had promised their children.

"My wife and I are both just middle-class working Americans, and to have a bickering match between Congress and the Senate and the White House cost my family their home and $10,000. … That's a lot of money for us," Tom said. "This has cost us dearly."